Charles K. Schwartz, founder of
Allied Health Care Services Inc., was granted $2 million bail
after his arrest last week in an alleged $87 million equipment-
leasing fraud.

Schwartz, who has been in custody since Sept. 2, can be
released on home detention with electronic monitoring, U.S.
Magistrate Judge Madeline Cox Arleo ruled today in federal court
in Newark, New Jersey. He must also undergo mental-health
treatment, Arleo said at a bail hearing.

Prosecutors charged Schwartz with mail fraud, claiming he
falsely told lenders from 2002 until July 2010 that Allied would
use their money to lease medical equipment. Instead, prosecutors
said, he defrauded lenders with a phony-invoice scheme involving
another company. He faces as many as 20 years in prison.

Three creditors -- Republic Bank of Chicago; Key Equipment
Finance Inc. of Superior, Colorado; and Kingsbridge Holdings LLC
of Lake Forest, Illinois -- filed an involuntary bankruptcy
petition against Allied on Aug. 19. Allied lawyer Gary K.
Norgaard today wrote to creditors: “Allied does not intend to
take further action to contest the involuntary petition.”

Schwartz’s attorney, John Whipple, had no immediate comment
after the bail hearing.

At least 10 lenders sued Schwartz in lawsuits around the
U.S. in recent months, including Texas Capital Bancshares Inc.

A Federal Bureau of Investigation arrest complaint said
Schwartz worked with a “co-schemer” identified as UC-1, who
owned a New Jersey vendor of medical equipment called Company 1.

Schwartz got phony invoices from Company 1 that said it
supplied medical equipment to Allied, according to the
complaint. Lenders would give money to Company 1 to buy the
equipment, and Schwartz would lease the equipment from lenders
and make periodic payments, according to the FBI.

Company 1 actually provided no equipment to Schwartz or
Allied, according to the FBI. Instead, UC-1 transferred the
money to company named C&C that Schwartz controlled, the FBI
said. UC-1 kept 3 to 5 percent of the money “for his role in
the scheme,” according to the FBI.

$87 Million in Checks

Schwartz caused checks totaling more than $87 million to be
sent from Company 1 to C&C, according to the FBI. The arrest
complaint quotes conversations between Schwartz and UC-1 last
month, including a call about bank examiners who wanted to see
Company 1’s stock of ventilators.

“If it gets to the point that he wants to see where you
bought them from, you give ‘em the same bull---- story you gave
the bank when they came and wanted to see where you bought them
from,” Schwartz told UC-1, according to the FBI.

Schwartz later told UC-1 that banks fell for an aspect of
the scheme “hook, line and sinker,” according to the FBI.

The case is U.S. v. Schwartz, 10-mj-8208, U.S. District
Court, District of New Jersey (Newark).